Is Now the Time to Buy Taiwan Semiconductor Manufacturing (TSM) Stock?

If you've been paying any attention to Taiwan Semiconductor Manufacturing (NYSE: TSM), you may be salivating at its performance -- and wondering whether now is a good time to buy it. It's up 1,257% over the past decade as I write this, with an average annual gain of nearly 30% -- enough to turn a $10,000 investment into $135,729.

It's a tantalizing investment prospect because of what the company does. While most semiconductor companies only design chips, Taiwan Semiconductor (TSMC) is one of the relatively few companies that actually make them -- and it's the world's largest maker of them, too, with a recent 68% market share in global semiconductor manufacturing. When it comes to advanced processors, its market share is around 90%.

Image source: Getty Images.

A recent Motley Fool research report on just how Taiwan Semiconductor makes its money is revealing, showing that the company is increasingly making chips with smaller and smaller transistors, which are more power-efficient and faster. These are in great demand as they're used for artificial intelligence (AI), smartphones, and data centers.

While many investors are excited for the prospects of chip companies such as Nvidia and Advanced Micro Devices because of the robust demand for faster chips, investors should remember that companies like Taiwan Semiconductor will be actually making these chips. Its future looks quite bright, too.

Another benefit is that competing semiconductor-designing companies are busy competing with each other to offer the fastest and most efficient chips -- TSMC benefits from all that activity. It may gain new customers, too. After all, some big tech companies are designing their own data center chips. Take a look at Meta Platforms, for example.

One concern some investors have about TSMC is that it's based in Taiwan, which is vulnerable to China. But the company has recently been investing in U.S.-based manufacturing facilities, which will also help it avoid some tariffs.

On top of all this, shares of TSMC are actually not wildly overpriced. The recent forward-looking price-to-earnings (P/E) ratio of 24.5 is a bit above the five-year average of 20.2 -- but both numbers are reasonable, given that the company is growing at a good clip. In TSMC's solid third quarter, revenue was up 30% year over year, while net income grew 39%. Also impressive, net profit margin came in at a hefty 45.7%.

Taiwan Semiconductor is a dividend-paying stock, too -- with a recent dividend yield of 1.16%. That may not seem like much, but note that it's been growing fairly rapidly, at an average annual rate of 13% over the past five years.

So, is now a good time to invest in TSMC? The stock market is unpredictable, so there's no definitive answer, but I'd say that if you plan to hold the shares for many years, if not decades, it's well worth considering at recent levels.

Selena Maranjian has positions in Advanced Micro Devices, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.